TRANSFER PRICING REGULATIONS New transfer pricing regulations were introduced based on the “Arm’s Length Principles” TAXATION OF CERTAIN INCOME UNDER SPECIAL MODES Insurance Companies will not be allowed to set-off losses against other income and carrying forward losses to be set off from subsequent years. The taxation of pensions for an individual for services rendered outside Cyprus is that any sum exceeding CYP 2,000 in any year of assessment will be taxable at 5%. The taxpayer may also elect to be taxed under the normal rules of the Law. Ship management Companies will be taxed at the rate of 4.25%. The taxation of Royalties, premiums, compensations, etc. earned from local sources by a non-resident beneficiary will be subject to a 10% withholding tax, but in the case where the right is granted for use outside Cyprus, such income will not be subject to withholding tax. There is a 5% tax on the gross amount of income derived from film rental by a non-resident. The taxation of the gross income derived by an individual, non-resident from any profession or vocation and the gross income of public entertainers and athletes will be liable to withholding tax but the rate of tax has been reduced from 15% to 10%.

CORPORATE TAX Companies, except semi-governmental entities, are liable to corporate tax at 10% on the chargeable income. Semi-governmental entities are liable to corporate tax at 25% on the chargeable profits. For the years 2003 and 2004 any of the two types of companies above will be paying an additional 5% tax on the excess profits of CYP 1m. (In order to avoid this, companies can split their activities into a number of corporations)